Any doubts anyone had about the legitimacy of cloud application software should have been laid to rest the last few weeks. When Oracle weighs in to buy RightNow as part of a larger acquisition strategy to acquire cloud software products, then the landscape of application software has definitely changed.

Let's recap:

Infor has decided to embrace Salesforce.com's cloud architecture and make some of their ERP data extensible via Force.com.

Sandra Kurtzig has come out of retirement to build another ERP solution, Kenandy. This one will be on the Force.com platform.

Rootstock now has their ERP solution running on both the NetSuite (NS-BOS) and Salesforce.com (Force.com) platforms.

Oracle bounced Marc Benioff from his planned keynote for Oracle Open World.

Okay - the last one might, arguably, not belong on that list but I added it as it shows the extent that Oracle has discovered the cloud, SaaS and multi-tenancy and would prefer to keep the limelight on their activities in that space. They're also acknowledging, in my opinion, that they see Salesforce as their true competitor today not Infor, not SAP - but Salesforce, Workday and others of the new generation of application software.

Remember Oracle already has CRM application product lines from Siebel, PeopleSoft/Vantive and its own E-Business Suite. Why buy RightNow, another CRM product line? Because Oracle may not get its older product lines rationalized to a single code base and re-tooled completely to full cloud multi-tenancy (a la Fusion) for some time. Yes, they have about 100 Fusion apps ready to roll but from what I can tell, not every app in their portfolio has a full and complete public cloud, multi-tenant version out there.

Acquisitions enable Oracle to instantly enter the public cloud/multi-tenancy world without a lot of time-consuming R&D delays. More acquisitions, therefore, should be expected.

This new era means that:

- Old school, on-premise software vendors will be on a buying spree. While they had over ten years to create real, true cloud solutions, most didn't. They mostly created SOA platforms, stall-ware and vision-ware. Now, they have to buy their innovation as they sat out the last decade.

- All of this acquisition activity will likely trigger a land rush to see who can assemble a great ERP suite from all of the component solutions out on clouds today. Some great HR solutions, like Taleo, SuccessFactors, etc. will likely get acquired. So will some of the discrete manufacturing solutions like Plex. Expect all sorts of deals to get made by cash-rich old-school vendors.

- But, the early deals will likely result in the best outcomes for vendors of newer, cloud application solutions. Why? Many firms will only need one of every acquired application. Once their cloud product line is fleshed out, they might view future acquisitions in a very different light. That means later acquisitions will be looked upon solely as a market share grab and not much else.

- Early M&A targets will likely be firms with huge cloud installation bases and/or killer technology. Middling market share and average technology will not drive deal interest or high valuations.

- Being a small cloud application vendor will become an especially dangerous space in about a year. These small vendors will not have the Marketing clout of larger firms and will lack a larger suite of solutions to compete with these new/old vendors.

- Cobbling together disparate cloud solutions is easier than integrating old-school products. But, different products from different vendors will have different user interfaces and some inefficiencies built-in to the process workflows. Acquirers will still have cosmetic and technical work to do to make the acquired solutions look and behave like a single, unified solution.

- Not all cloud solutions will generate top dollar from acquirers. Some cloud application suites are:

Collages of acquired products

Really old cloud solutions that need re-working

Actually on-premise solutions that are being hosted and hence called cloud products. While they may be available on a subscription basis, they may not be multi-tenant.

- Some cloud application vendors were launched in the late 1990s. The investors, venture capitalists and executives within these firms will be looking for an exit strategy or liquidity event. This may be their best window of opportunity for some time.

Several kinds of acquisition strategies will emerge in the next few months.

- Initially, some large vendors will buy piece parts of an ERP suite. They'll want to stitch these together to make a larger solution. They'll sell it as an ‘integrated' product and tout their long-term vision that will make it ‘seamless' and ‘value-added'. If you believe that then I've got a bridge I'd like to sell you.

- Some vendors will want to buy market share. They might buy 2-3 HR or CRM product lines just to get economies of scale and more maintenance/subscription money.

- Some vendors will want to do both.

- Some vendors will seek to buy products with great patents. They'll price the acquisition based on the potential litigation and infringement claims they can collect.

Customers of cloud application solutions may be in for some turbulence. New software owners may:

- Forcibly convert acquired customers to a different solution

- Change the terms of the service and pricing, particularly, for those customers on monthly subscription contracts

- Move the solution off of the original vendor's data center. You may have a sales/use tax, legal nexis or sovereign data issue arise if this happens

Customers need to take out those SaaS contracts today and read them closely. Did your firm get provisions that cover:

Material change of control protections?

Lock-ins for pricing for many years to come?

Solid performance guarantees and penalties should performance slip?

Remedies should the vendor or acquirer forcibly change your service to another product line?

The location of cloud service centers?

Etc.

Systems Integrators (SI), resellers and other channel partners may want to re-examine their alliance strategies, too.

Right now, who do I like? I like these firms as they seem less likely to get acquired:

- Workday - It's the only SaaS financials and HR solution targeting large enterprises. Several HR solutions target large enterprises but no one is close to Workday and their vision for financials. They're also way ahead of other firms in their use of in-memory technology for application software. I also don't see Aneel or Dave ever agreeing to let Oracle buy this software company of theirs for a long, long, long time.

- SalesForce - Much more than a CRM provider, Salesforce has a huge ecosystem, 80,000+ customers, Force.com PaaS, VMForce, Database.com and much more. They're so big they are almost impossible to buy. But, if Oracle did try to buy them, I'd want a front-row seat to watch Marc Benioff and Larry Ellison negotiate the terms of that transaction.

- SAP Business ByDesign - A very complete SaaS product line that comes with a powerful configuration tool. SAP won't sell it and it is in an ascendancy mode of late. There's also virtually no risk that Oracle could buy SAP without a protracted FTC review of the deal.

Of course, I also like a lot of other cloud solution providers. Here are just a few of them (and I could build a list 10 pages long if I had the time and space):

- NetSuite - Definitely a great platform play for a vendor that's got a lot of mid-market momentum, a strong presence in the services market and more.

- Plex and RootStock - Two very complete ERP solutions with lots of discrete manufacturing traction.

Bottom line:

- Expect a flood of M&A deals to occur in the cloud applications space. A spate of them recently occurred in the HR market as cloud vendors tried to round out their talent management, Payroll, Learning Management and HR book of record systems into larger, one-stop HR suites. This time, we can expect to see cloud and on-premise application vendors rushing in to acquire supply chain, manufacturing, HR, Finance, procurement and other products to build out a complete ERP offering.

- Expect a lot of discussion to emerge re: the PaaS underneath the new cobbled together solutions. Here's where Salesforce and NetSuite should shine as they have full ecosystems and platforms whereas the firms buying pieces do not. Acquirers may try to marry their SOA architectures with some of the acquired pieces to create their own PaaS-like environment. But, time will tell if they can create rich ecosystems around these products.

- Lots of cloud customers are going to find themselves moving from being a ‘customer of consequence' to a cloud vendor to just one of thousands of ‘inconsequential customers' of a larger mega-ERP vendor.

- Many cloud customers today can expect customer support to falter during these acquisitions. Handoffs of key administrative, technical and customer support functions, to name but a few, may very well occur.

- Top prices for acquired firms will come now but some cloud vendors, eager for a liquidity event, may accept lower pricing just to lock in a sure deal.

- Cloud vendors that don't get acquired now may be in for a long, painful future. Their size and market share will keep them under attack and with lower margins for possibly years.

And finally, all of this activity will give me plenty to write about for some time.

Thank You

By registering you become a member of the CBS Interactive family of sites and you have read and agree to the Terms of Use, Privacy Policy and Video Services Policy. You agree to receive updates, alerts and promotions from CBS and that CBS may share information about you with our marketing partners so that they may contact you by email or otherwise about their products or services.
You will also receive a complimentary subscription to the ZDNet's Tech Update Today and ZDNet Announcement newsletters. You may unsubscribe from these newsletters at any time.